Asian markets mostly recovered Thursday from the previous day's sharp losses but Tokyo tumbled as investors returned from a long weekend to play catch-up, with auto giants hit by the Volkswagen scandal.
The dollar edged up against most emerging market currencies ahead of a closely watched speech later in the day by Federal Reserve chief Janet Yellen, during which markets hope she will provide more clarity on the bank's plans for an interest rate hike.
Stocks and other high-yielding, or riskier, assets took a hit after the Fed's decision last week to hold -- citing China's woes and a developing market slowdown -- fanned concerns about the US and global economy.
Those worries were exacerbated Wednesday when a closely watched gauge of Chinese manufacturing activity for September hit a six-and-a-half-year low, the latest ion in a string of results highlighting a severe slowdown in the world's number two economy.
The news sent shares in Asia plunging -- with Shanghai and Hong Kong down more than two percent -- followed by losses in New York.
On Thursday, however, investors in most stock markets turned buyers, with Shanghai up 0.75 percent, Sydney adding one percent and Seoul 0.42 percent higher. However, Hong Kong continued to drop, shedding 0.44 percent.
Tokyo tumbled 2.34 percent by lunch as trading began for the first time since Friday owing to a three-day public holiday.
"Japanese markets have still got some catch up to do after the uncertainty that’s been washing through global markets," Tony Farnham, a strategist at Patersons Securities in Sydney, said.
"The issue is gauging the extent of the slowdown in China and the ongoing debate about whether the Fed is doing the right thing" on when to raise interest rates.
- VW scandal hits cars -
Automakers were among the big losers on Japan's Nikkei as the industry is rocked by the Volkswagen emissions scandal.
Toyota fell 1.44 percent while Honda plunged 3.21 percent and Nissan was off 1.40 percent by the break.
German giant Volkswagen has lost a third of its value this week in Frankfurt after it emerged it had installed in as many as 11 million diesel cars software capable of fooling official pollution tests.
"We expect the market to consider the situation to be a risk factor for Japanese carmakers as well," said Heo Pil Seok at Midas International Asset Management in Seoul.
Attention will now turn to Yellen's speech later in the day, her first since last Thursday when she warned about the troubles in overseas markets.
Dealers will be looking to see if she sheds any more light on when the bank will lift borrowing costs, with some economists saying a lack of clarity is worse for global markets than an actual hike.
While the dollar initially retreated after the decision, it has risen this week against most emerging currencies after three Fed regional presidents argued for a liftoff by 2016 saying the US economy was strong enough.
And it extended those gains in Asia Thursday. The Australian dollar was 0.05 percent lower, the South Korean won eased 0.11 percent, Indonesia's rupiah lost 0.19 percent and Malaysia's ringgit sank almost one percent.
Economists expect a rise in interest rates would likely see a flight of cash from emerging economies as investors look for better and safer returns in the United States.